How to decide on buying or selling manure

Wednesday, May 2, 2012

As livestock farms become larger, there will be more situations where it is better for farmers to sell the manure to a neighbour than to spread it on their own farm. The challenge is deciding on a fair value

by KEITH REID

Many livestock farmers recognize the advantages of adding manure to their cropping programs. The savings in fertilizer costs and the potential for improved yields from adding organic matter can easily add up to a hundred dollars or more per acre.

While these numbers are based on real values, they do not represent what someone would be willing to pay for manure as a crop input. Since a livestock farmer needs to deal with manure somehow, the cost of applying it to the field is not normally counted against the nutrient value. It is also quite common to calculate a value for all the nutrients in the manure, whether the field actually needs those nutrients or not.  

As livestock farms become larger, there will be more situations where it is better for farmers to sell the manure to a neighbour than to spread it on their own farm, either because there is more manure than is needed to feed the crops, or because the cropland is too far away from the manure storage. The challenge is to decide on a value for the manure that is fair to both the buyer and the seller.

Buyer's point of view. For crop producers (the buyers), the manure needs to replace the nutrients normally applied as commercial fertilizer, at an equal or lower price. Otherwise, it doesn't make economic sense.

The nutrient value of the manure should be known, both in terms of the total nutrient concentration in the manure and the proportion of this total that would be available to the crop. Since manure is bulky, the cost of transport and application needs to be taken into account and it is possible that, for very dilute manure, the application cost is greater than the value of the nutrients. In this case, it would only make economic sense to use the manure if it was sold "as applied," which few sellers are willing to offer.

So far, the calculations are pretty straightforward – the amount of available NPK, times the price of NPK as fertilizer, minus the transport and application cost, equals the maximum amount a farmer should be willing to pay. There may be some additional value for the organic matter in the manure, but there is also a risk of soil compaction during application, so this is often ignored in the short term.

Complications arise, however because the nutrient content of the manure may not match what the crop requires. Phosphorus or potassium that the crop doesn't need will be held in the soil for future years, but they won't provide any immediate pay-back. There may also be some uncertainty about exactly how much of the applied nitrogen will be available to the crop. Both of these factors would reduce the maximum value that the buyer would be willing to pay for the nutrients.

Seller's point of view. Livestock producers (the sellers) represent a range of production systems, from highly specialized operations with little or no cropland to fully integrated operations with extensive crop production.

Within this range, there is a similar diversity in the potential value of manure, and this will be reflected in the minimum price they would be willing to accept. At the extreme low end of the spectrum is manure that is "free for the taking," although this is becoming rarer with recent increases in fertilizer prices. The other end of the spectrum includes farmers who are processing or amending manure to create a product that can compete directly against fertilizer as a nutrient source.  

Most farms will be between these extremes in terms of price expectations, but they may have more concerns around issues like storage capacity and the willingness or ability of buyers to take the manure at specific times that match up with livestock production cycles. A seller who expects a buyer to empty a manure storage tank in the fall, but is left with a half-full tank instead, can be facing serious repercussions for his annual production cycle.  

Balancing both perspectives. Settling on a fair price is going to have to take all these factors into account, plus the local supply and demand situation. Inevitably, the price for manure will be higher in areas where it is scarce than where there is a surplus. This means that pricing will always be determined on a case by case basis, but within some boundaries. BF

Keith Reid is Manager (Eastern Canada) – Soil Nutrient and GHG Management, Agriculture and Agri-Food Canada, Guelph.